Will Natural Gas Fuel America in the 21st Century?

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Key Investigative Points: • Assumption #1: That, thanks to new techniques forhydraulic fracturing and horizontal drilling of shale, we have sufficient natural gas resources to supply the needs of our country for the next 100 years.• Assumption #2: That the price of natural gas, whichhas historically been volatile, will remain consistently low for decades to come.• Assumption #3: That natural gas is much cleaner and safer than other fossil fuels, from the standpoint of greenhouse gas emissions and public health.

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Figure 10. Number of U.S. producing natural gas wells versusthe average productivity of each well from 1990 through 2010.

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Figure 11. Annual number of successful U.S. natural gas wellsversus total U.S. dry gas production 1990 through 2010.

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Figure 12. Price of natural gas in the United States versusEuropean gas (incl. Russia) and Asian LNG.

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Figure 13. Shale gas plays in North America.Image: Government of Canada, The National Energy Board, Energy Briefing Note: A Primer for Understanding Canadian Shale Gas (2009).

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The Hype on Shale Gas“I believe natural gas can and should be the driving force for how this Congress can take bold action to free our country from the death grip of high prices for imported oil, thereby improving our economy, enhancing national security and helping the environment.”“I believe U.S. natural gas producers can increase supplies by 5% per year for at least the next decade and that assumesthere is no more access to public lands and waters than there is today.” [That’s 63% in 10 years!] (Chesapeake Energy CEO Aubrey McClendon, Testimony to Congress, July 30, 2008) (Aubrey McClendon, CEO Chesapeake Energy and former Chairman of American Clean Skies Foundation who commissioned The Navigant Consulting Inc. study on natural gas, testimony to Congress July 30, 2008)

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Analyst Arthur Berman on Shale Gas (Washington DC, October, 2010) “Shale plays are marginally commercial at best.”“Average well life much shorter than predicted and the volumeof commercially recoverable gas has been greatly overstated.” “The plays have consistently contracted to a core area that represents 10-20% of the resource that was initially claimed. The manufacturing model has failed.”“These are not low-cost plays: the marginal cost of production for most companies is $7.50/Mcf based on regulatory filings “Reserves have been greatly over-stated and 80% of booked reserves are undeveloped.” (from Art Berman’s ASPO-USA presentation in October 2010)

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Figure 19. Historical U.S. gas prices compared to European gas (incl. Russia)and Asian LNG prices and the EIA forecast of U.S. gas prices through 2035.

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Natural Gas Production in the United States by Well Vintage at Yearend 2006(60% of Production from wells drilled in past FOUR YEARS) 60% From Most Recent FOUR YEARS (data copyright IHS Energy, Diagram prepared and copyright by EOG Resources Inc., 2006)

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Figure 18. Historical and projected U.S. gas production and drilling rates forthe EIA forecast and author’s best estimate of the drilling rates that would berequired to achieve the EIA forecast, based on historical performance.

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Figure 20. Location and relative size of U.S. electricitygenerating capacity by fuel

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Figure 27. Cumulative additions of coal- and natural-gas-fired generationplants in the United States over time according to the number of plantscommissioned in each period and their generating capacity.

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Figure 21. Amount that U.S. Lower-48 natural gas production would have toincrease to cover the electricity generated by coal in the EIA Annual EnergyOutlook 2011 forecast.

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Figure 22. Comparison of Howarth et al. estimates for shale gas, conventional gas ,and coal in terms of carbon emissions per unit of heat versus Global WarmingPotential using the estimates of the IPCC and Shindell et al. on 20- and 100-yeartimeframes.

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Figure 24. Comparison of future CO 2 equivalent emissions per kWh, if a 40%reduction is achieved in current methane emissions, for the mean shale gasemission estimate of Howarth et al. compared to surface-mined coal for both theexisting coal and gas electricity generation fleet and best-technology coal andgas.

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Figure 4. U.S. oil consumption in the transportation sector byend use projected through 2035.

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Figure 28. Amount that U.S. Lower-48 natural gas production would have toincrease to cover the oil burned by light and heavy vehicles in the EIA AnnualEnergy Outlook 2011 reference case projection.

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Key Take Aways: „ The ability of natural gas to substantially replace coal for electricity or oil for transport in the longer term is limited.„ Maintaining and growing natural gas production as projected by theEIA will require higher prices and will be a capital intensive, geological and environmental challenge. Yet, even if achieved, will not allow for significant replacement of coal or oil in current business-as-usual projections. „ The mantra of natural gas as a “clean bridge fuel” to a renewableenergy future is highly suspect, because of its environmental footprinton the landscape, lack of ability to scale to required energy input levels and full-cycle greenhouse gas emissions. „ There is no “Free Lunch” when it comes to fossil fuels. They will bevery important inputs going forward but must be objectively deployed in an environment that maximizes conservation and efficiency.